Weekly Economic Update: January 23, 2024

Presented by Nicholas Wealth Management

Consumer spending still going strong

The consumer hasn’t gotten tired of spending — at least not yet. December retail sales, released last Wednesday, were strong and easily exceeded expectations. The latest consumer sentiment number also came out last week, jumping to its highest level in nearly three years. One researcher said the increase shows that consumers believe “inflation has truly turned the corner.”

Domestic stocks closed mostly higher for the week, although the Dow dropped late in the week after Boeing shares fell sharply. The fallout is mainly related to possible delivery delays as Boeing planes undergo closer scrutiny for safety issues. (The FAA really doesn’t want any more doors falling off mid-flight.) Meanwhile, only 23 companies in the S&P 500 have reported fourth-quarter earnings so far, and it’s still a bit early in the process to note any positive or negative trends. The S&P 500 closed at an all-time high on Friday, cresting well above 4,800 points.

Still, the strong economic data has created some doubt about possible rate cuts this year. By Friday afternoon, futures markets priced in a 13.1% chance of seven or more rate cuts in 2024, well below the 61.5% chance the week before. And the chances of a rate cut in March were nearly slashed in half, going from 81% to 47.4%. Much of this decline happened after Fed Governor Christopher Waller said, “I see no reason to move as quickly or cut as rapidly as in the past.” The comment also drove up the yield on the 10-year Treasury note, which once again ended the week above 4%.

Discussion about rates will continue this week and into the next. The Federal Reserve is scheduled to meet next Tuesday and Wednesday. Although it’s not expected that they will raise rates again, Fed Chair Jerome Powell’s post-meeting comments will be closely scrutinized for clues about whether or not cuts are coming — and when they might happen.

Coming this week

• The first part of the week is light on data. We’ll see U.S. leading economic indicators on Monday, plus the Purchasing Managers’ Index (PMI) on Wednesday.
• On Thursday, the first reading of fourth-quarter gross domestic product (GDP) will be released. The forecast is for growth of 1.7%, a big decline from third-quarter growth of 4.9%. A higher-than-expected number could create some volatility for markets, which are already nervous about rate cuts not happening as planned this year.
• Other data on Thursday will include durable goods orders, retail and wholesale inventories, and new home sales.
• The latest personal consumption expenditures (PCE), personal income and personal spending reports will be released on Friday, giving us further insight into consumers’ current state of mind. Pending home sales will close out the week.

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